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G7 seeks to avert global recession

Finance ministers and central bank governors of the G7 richest nations are set to meet to discuss plans to combat what IMF chief Dominique Strauss-Kahn called the worst financial crisis since the Great Depression.

Group of Seven finance officials gather here Friday to discuss plans to prevent a repeat of what the IMF chief says is the worst financial crisis since the 1930s Great Depression.

The meeting of key finance ministers and central bank governors comes amid increasingly grim forecasts for the international economic outlook, with worries about a global slowdown and a US recession.

Federal Reserve chairman Ben Bernanke said Thursday the current financial crisis requires swift action to improve US market regulation, endorsing a plan by a US task force.

"We do not have the luxury of waiting for markets to stabilize before we think about the future," Bernanke said in a speech, the text of which was released by the Fed.

"Indeed, many of the necessary changes that have been identified, including increasing transparency, improving risk management and attaining better coordination among regulators, could provide important support to the process of normalizing our financial markets."

The G7 ministers will weigh a plan drafted by a global group, the Financial Stability Forum (FSF), that would require banks and securities firms to be more transparent in their dealings and boost capital reserves as part of improved risk management to avert future crises.

International Monetary Fund managing director Dominique Strauss-Kahn said Thursday the current global turmoil is the biggest financial crisis since the Great Depression of the 1930s.

"But it is a new kind of crisis," he said at a news conference.

"There is no other institution but the IMF likely to work on the linkages between the financial sector and the real economy, and that is really what today is at stake."

The G7 meeting comes against the backdrop of the IMF's dire forecasts for the direction of the world economy as the US subprime home loan crisis batters the world's biggest economy and roils global financial markets.

Global expansion is set to slow to 3.7 percent in 2008, half a point lower than its January estimate, and the US economy is likely in a "mild recession" and will stagnate through much of 2009, the IMF said Wednesday in its semiannual World Economic Outlook report.

If approved by the G7 rich countries, the new guidelines could be in place later this year in an effort to avoid the kind of surprise losses incurred by many financial institutions when the US real estate market soured.

The plan would require credit rating firms to differentiate their ratings for complex securities and provide more information about how they come up with their ratings. Some analysts blame these agencies for luring investors into risky securities tied to the high-risk subprime US market because of top-quality ratings.

The plan would also boost cooperation and information exchanges among central banks and market authorities, with cross-border meetings by year-end.

It also calls for central banks to have more flexibility in offering liquidity when the financial system is under stress.

The meeting of the finance officials from the G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- comes on the eve of the spring meetings of the IMF and World Bank this weekend in Washington.

The Financial Stability Forum includes representatives of 26 entities including central banks, the IMF and World Bank, and market regulators from the large economies. It is based at the Bank of International Settlements in Switzerland.